News for the Hospitality Executive
The State of the U.S. Hotel Real Estate Market:
Trophies and Treasure
By Scott Smith, MAI, August 18, 2010
Given the minimal transaction activity that has occurred during 2009 and 2010, it has been a challenge to assess the state of the U.S. hotel real estate market. With industry fundamentals at all-time lows, one would assume that cap rates are on the rise and buyers are favoring popular select-service properties over risky and expensive high-end hotels.
Based on the 2010 edition of PKF Consulting’s Hospitality Investment Survey (HIS), this is not the case. According to the 220 participants in this year’s survey, acquiring a relatively expensive trophy property is worth the risk. At the other end of the spectrum, some hidden treasures can be found among distressed poor performers that can be purchased with all cash and have significant upside for an opportunistic owner/operator.
The turmoil of the polarized “trophy or treasure” marketplace is evident in the numbers published in the 2010 HIS report. The following paragraphs summarize the results of the 2010 survey.
In the June 2010 edition of Hotel Horizons®, PKF Hospitality Research (PKF-HR) forecast a slight 1.7 percent increase in RevPAR and a 1.4 percent fall-off in profits for 2010. These projections foretell another year of difficult market conditions that would, in theory, continue to suppress transaction activity. However, a closer look at the forecast finds that all important industry measurements will begin to “turn” throughout the year. By the fourth quarter of 2010, PKF-HR projects that occupancy, ADR, and RevPAR will all exhibit growth over the same quarter of the prior year. The bottom of the current industry has occured, and lodging investors should calibrate the timing of their acquisitions accordingly.
Another factor buyers should consider is the upcoming election. It is generally believed that interest rates will remain low during the upcoming campaign season. After November, interest rates may begin to rise.
Scott Smith, MAI, is Senior Vice President in the Atlanta office of PKF Consulting (www.pkfc.com). To purchase a copy of the 2010 Hospitality Investment Survey, please visit www.pkfc.com/buyhis. Portions of this article were published in the July 2010 issue of Lodging.
|Also See:||The Outlook For Hotel Investments / Scott Smith / July 2009|